"This has led us to conclude that Irish banks' asset quality and earnings will, in general, likely remain under significant pressure over the medium term." It added that it considers the current operating conditions for the Irish banking industry to be "weak, and expect that any

recovery in earnings prospects will prove to be sluggish".

 

The recovery in Irish economic performance appears likely to be gradual, it said, with growth only consistently established in late 2010 at the earliest while loan losses will likely be elevated between 2009-2011 and will likely peak in 2010.

 

Wholesale funding conditions appear likely to remain pressurised, with strong competition for retail deposits. "Our view of systemic importance is not uniform across the sector; and We expect the government to remain supportive of systemically important, domestically-owned institutions." "We expect the Government to remain supportive of systemically important, domestically-owned institutions," S and P added.

 

It said it was cutting AIB to 'A-/A-2' from 'A/A-1'. It said it was expecting sustained high credit losses, combined with weaker pre-provision income, will continue to pressure the bank's financial profile in the coming two years. It remains on negative outlook. The agency said it was also downgrading Bank of Ireland to 'A-/A-2' from 'A/A-1' and said its outlook was stable due to the fact that it expects that the Government will remain highly supportive of the bank.

 

Ulster Bank Ireland Ltd's ranking has been cut from 'A+' to 'A', while it said its outlook is stable. It said the bank is now expected to be 'strategically important' to Ulster Bank's parent Royal Bank of Scotland Group rather than 'core'. Anglo Irish Bank has been reduced to 'BBB' from 'BBB+'. It also said it was placing the bank on CreditWatch with negative implications due to the 'potentially considerable downside risks relating to the pending European Commission's restructuring decision'. The ratings on Irish Life and Permanent remain unchanged as it continues to benefit from the relative strength of the group's life assurance operations.